Pacific Western Bank has raised $1.4 billion from investment firm Atlas SP Partners, the lender said on Wednesday, as the crisis-hit sector scrambles to limit the damage from the recent collapse of two mid-sized lenders.
Shares of the bank were down 10% in morning trading, even as the lender tried to allay investor worries by saying it had more than $11.4 billion in cash as of March 20.
Los Angeles-based PacWest also said it had explored the idea of raising new capital, but decided against the move due to a rout in bank stocks. “Any time that you know a bank talks about having considered a capital raise, especially in this environment where there’s so much skittishness from the markets, it’s bound to have a negative impact of the stock,” said Gary Tenner, analyst at brokerage D.A. Davidson & Co.
Reuters first reported last week that PacWest was in talks with investment firms including Atlas SP Partners for ways to boost its liquidity.
The bank said deposits insured by the Federal Deposit Insurance Corp, including accounts eligible for pass-through insurance, exceeded 65% of its total deposits, as of March 20.
Total deposits at the bank fell 20% to $27.1 billion from $33.9 billion as of Dec. 31.
“The update that put out today versus the update that put out last Friday, the read on it is a little bit more negative,” Tenner said.
Regional banks, whose stocks have been battered since the collapse of two mid-sized U.S. lenders this month, have tried to assure customers their deposits are secure after the recent bank runs whipsawed the global financial ecosystem.
Graphic: PacWest shares plummet in the aftermath of bank runs - https://www.reuters.com/graphics/GLOBAL-BANKS/egpbyjjgavq/chart_eikon.jpg
“We will continue to see flows away from regionals and into systemically important banks that are too big to fail,” said Thomas Hayes, chairman and managing member of Great Hill Capital.
Treasury Secretary Janet Yellen, in prepared remarks before the American Bankers Association, said the U.S. banking system has stabilized due to decisive actions from regulators, but warned more action might be required.
Attention now shifts to the Fed, which has gathered for its two-day monetary policy meeting, at which the members of the Federal Open Markets Committee (FOMC) will revisit their economic projections and, in all likelihood, implement another increase to the Fed funds target rate in their ongoing battle against inflation.
“The Fed will raise interest rates by 25 basis points and the market won’t care,” Pursche added. “It will all be about (Chairman Jerome) Powell’s statement on the economy and inflation, and if he can do a good enough job convincing the public that the banking noise” can be attributed to bad management on the part of a few banks.
At last glance, financial markets have now priced in an 83.4% likelihood of a 25 basis-point rate hike, and a 16.6% probability that the central bank will leave its policy rate unchanged, according to CME’s FedWatch tool.
Economic data released early in the session showed a 14.5% jump in existing home sales, blasting past expectations and snapping a 12-month losing streak.
According to preliminary data, the S&P 500 .SPX gained 50.84 points, or 1.29%, to end at 4,002.41 points, while the Nasdaq Composite .IXIC gained 181.47 points, or 1.55%, to 11,860.04. The Dow Jones Industrial Average .DJI rose 313.36 points, or 0.97%, to 32,566.44.
Shares of First Republic Bank FRC.N saw their biggest-ever one-day percentage jump as JPMorgan CEO Jamie Dimon leads talks with other big banks aimed at investing in the lender, according to the Wall Street Journal.
Peers PacWest Bancorp PACW.O and Western Alliance Bancorp WAL.N also surged.
The broader European STOXX 600 index also managed to make it into positive territory to be up 0.98%.
“Credit Suisse is our Lehman moment in Europe, but we recognise that and we are not going to make the same mistake,” Close Brothers Asset Management Chief Investment Officer Robert Alster said of the speedy action by authorities over the weekend.
He said the European Central Bank, Bank of England and others would be well aware “of the next gazelles in the chain that the lions will be hunting” - meaning other large banks with investment banking arms such as Deutsche Bank, BNP in France or Barclays in the UK - and will step in with support if needed.